Natural gas hitting baseload sources, US grid report says

A long-awaited study released last week by the US Department of Energy pointed to the rise of natural gas generation as the leading cause of coal and nuclear plant retirements.

The report also said renewable energy growth, driven by government subsidies, is reducing revenues for baseload plants by lowering energy prices and displacing their output. But after spurring fears that it would target wind and solar, the report acknowledges that these energy sources have played a secondary role in creating the challenges facing the industry. The greater strain on baseload power sources comes from the economic shift to natural gas, with flatlining electricity demand also playing a role.

“The resulting low average wholesale energy prices, while beneficial for buyers of wholesale electricity, represent a critical juncture for many existing baseload generation resources and their role in preserving reliability and resilience,” the report stated.

The study zeroed in on the grid’s resilience and reliability, saying the energy department and other federal agencies should lighten the licensing and permitting processes for nuclear, hydro and coal power assets.

“Markets recognise and compensate reliability, and must evolve to continue to compensate reliability, but more work is needed to address resilience,” the report said.

Energy secretary Rick Perry requested the study in April, citing threats to the grid’s resilience and faulting “regulatory burdens introduced by previous administrations that were designed to decrease coal-fired power generation”. Critics of the administration and many in the renewable sector feared the report would aim solely to boost coal and nuclear power, or at worst would claim renewable energy growth threatened the grid’s reliability.

“A lot of people felt that there might be more of a political angle,” Gregory Remec, a senior director for Fitch Ratings’ global infrastructure group, told Infrastructure Investor. “Nothing jumped out at me as being overtly politically driven in any direction.”

The report did point to the impact of environmental regulations, including the Mercury and Air Toxics Standards, on coal plants. But its policy recommendations, Remec noted, fell short of advocating for a full reversal of these rules.

Since taking office, President Donald Trump has backtracked on his predecessor’s effort to move the country towards renewable energy resources. Trump announced the US would withdraw from the Paris climate accords and has also sought to end the Clean Power Plan, both based on lessening US reliance on fossil fuels.